7 Oct 2009Australia Broadband Overview

The Australian telecommunications market was deregulated in 1997. While broadband penetration has been increasing, Australia offers the third most expensive monthly broadband service according to the OECD ranking. Telstra has retained market power, and as a consequence the industry remains highly concentrated. Also, promotion of competition is heavily dependent on regulatory mechanisms. The industry has seen a high level of disagreement and litigation between operators as well as ongoing disputes between the government and incumbent Telstra.

The vertical integration of Telstra has been one of the most substantial regulatory issues facing the Australian telecommunications industry and has significantly constrained competition. However, in April 2009 the Rudd government announced plans for a national fibre-to-the-premises wholesale infrastructure. This infrastructure has been described by Australia’s regulatory authority as the most momentous policy initiative in the Australian telecommunications sector since the introduction of full competition over a decade ago.

The National Broadband Network (NBN) operator will be structurally separated and will provide wholesale services on an open access basis. No single retail company will have overall control of the network. Structural separation will mean the NBN operator has a clear incentive to treat access seekers on an equivalent basis. Therefore, the government’s announcement provides an opportunity to solve the difficulties arising from the vertical integration of the current incumbent, and set the foundation for a truly competitive 21st century telecommunications industry in Australia.

The incumbent Telstra owns the majority of Australian landline infrastructure, with Optus owning the rest. Competitors often resell these lines while some have other options. These options include using their own ADSL networks over Telstra copper wiring (24 Mbps), using cable networks (30 Mbps), using businesss fibre in city centres and using various wireless choices which predominantly exist in larger cities.

Telstra began offering high speed broadband through its cable service in 1996. Telstra’s ISP BigPond was launched in 1996 and ADSL introduced in 2000. As of March 2009, approximately 80 per cent of the Australian population has access to Telstra's ADSL2+ service with speeds of up to 20 Mbps. Telstra's cable broadband services offer residential customers speeds of up to 30 Mbps in selected areas of Sydney and Melbourne and up to 17 Mbps is other areas. Both Telstra and Optus have a share in the mobile market.

Australia’s mobile market reached 100 per cent saturation in 2007. Competitive tensions between the four mobile network operators – Telstra, Optus, Vodafone and Hutchison (operating under the ‘3’ brand) has generated a better outcome for the end user than that in fixed services where there has been little competitive pressure on Telstra’s copper network. By the end of 2008, there were 23.29 million mobile subscribers, equivalent to a penetration rate of almost 111 per cent. Telstra had a market share of approximately 42 per cent with 9.8 million subscribers, followed by Optus with a 33 per cent market share. Vodafone was in third place with a market share of 17 per cent.

In 2006 Telstra rolled out its NextG (3G) mobile network, significantly improving its capacity to provide broadband services to mobile devices. The launch of the NextG network prompted rival carriers to roll-out or upgrade their own 3G infrastructure. For example, early in 2007 Optus announced it would extensively upgrade its own 3G network. For some carriers, mobile broadband provides an alternative to more established broadband technologies, albeit currently at higher prices than fixed line alternatives. The Australian mobile market witnessed some important milestones in 2007, including the introduction of flat mobile data charges, the debut of 3.5G networks across the country, and the introduction of prepaid and MVNO 3G offerings.

Despite penetration levels exceeding 100 per cent, Australia’s mobile market recorded stronger than expected growth in 2008 thanks largely to the substantial 3G progress made by all four carriers, particularly Telstra. At the beginning of December 2008 Telstra activated the HSPA technology needed to boost its NextG network to 21 Mbps. Telstra followed this six months later in June 2009, with the announcement of an upgrade to its mobile broadband network to peak network uplink speeds of 5.8 Mbps. The increased uplink speeds complement the download speeds available since the deployment of HSPA+ technology across the footprint in 2008. At the end of March 2009, Telstra’s 3G network had 99 per cent coverage, with Optus at 96 per cent.

The most significant development in Australia’s mobile market H1 2009 was the merger of Hutchison and Vodafone, approved by Australian industry regulator in June 2009. The new entity is a 50/50 joint-venture known as Vodafone Hutchison Australia (VHA). VHA has said it would continue to use both the Vodafone and 3 brands with all network arrangements, caps, plans and handsets staying the same into the foreseeable future. The joint-venture’s total subscriber base is over 6 million. Both Vodafone and Hutchison have extensive 3G networks which combined will provide direct 3G access to 63 per cent of the Australian population. Add to this the Telstra NextG roaming agreement and VHA subscribers will have access to the largest, most saturated 3G coverage available in Australia.

In early July 2009 the regulator released its public competition assessment of the Vodafone/Hutchison merger. The report reveals why the regulator appeared not to support the merger in April 2009 when it said it would lead to higher prices, but then approved the deal in June 2009. Key to the reports finding was that constraints on Hutchison and Vodafone’s network capacity, resulting from a failure to expand existing networks, would ultimately lessen their effectiveness as competitors to Telstra and Optus. The regulator acknowledged that the merger would lead to a significant increase in concentration in the already concentrated markets.